Regardless of who triumphs in the Labour Party’s leadership contest, it is worth considering how the party could construct a progressive financial services policy programme based on both its ideology and values and recognising the value of a robust financial sector. A fresh agenda in this area may now be worth pursuing given the ongoing global debate on reform of the financial system and corporate governance and the new Prime Minister’s eagerness to set out bold reforms on the latter in particular, which Labour could look to trump.
Corbyn’s Labour does have policies with some appeal to the financial sector. They include safeguarding banks’ passporting rights in post-Brexit Britain, hints that no major changes to bank taxation will take place and boosting business investment through a national investment bank. More contentious banking policies such as a modernised Glass-Steagall Act, the unilateral introduction of a financial transactions tax and the break-up of retail banks appear to have been quietly shelved.
Following this tinkering, the future Labour leader could consider reforming proposals emerging from figures working in finance globally as part of a new, progressive financial services policy agenda. As both leadership contenders are looking to take the party in a relatively similar direction in terms of policy, this agenda could be pursued by either candidate.
For instance, Labour could examine ideas endorsed by the working group on corporate governance in the United States, led by J.P. Morgan’s CEO, Jamie Dimon, and Warren Buffet. The group (also involving some of the world’s largest asset managers), has criticised quarterly earnings forecasts, believing firms should deviate from this practice to free them from short-termism, and recently outlined principles of best practice on corporate governance covering shareholders rights and executive compensation with the aim of promoting longer-term investment. Labour could consider some of the group’s proposals in its executive pay commission, launched in April, that is looking to hand more power to shareholders and boost staff representation on boards. Dimon and Buffet’s group has also called for more independent, slimmed-down boards comprised of members with greater expertise that can convene without CEOs present; another interesting policy for the party to perhaps consider.
“The future Labour leader could consider reforming proposals emerging from figures working in finance globally as part of a new, progressive financial services policy agenda.”
There are additional proposals emanating from those working in financial services, including from the outgoing CEO of the London Stock Exchange, Xavier Rolet, who has voiced support for reforms to tax rules incentivising firms to take on debt. Labour could engage with the new Banking Standards Board, which was setup last year to help banks improve standards of behaviour. It is comprised of 31 banks and building societies and grades banks annually on their efforts to improve culture. Could Labour build on this initiative and commit to publish a list each year on banks’ progress (independently assessed) to encourage best practice? (The Board has been criticised by some for not publishing banks’ progress in the public domain)
Many senior executives at banks themselves publicly acknowledge the continued need for improvement in the area of culture. Simon Lewis, the CEO of the trade association for European banks, AFME, has argued senior management at banks need to ensure that culture “permeates” throughout all levels of institutions.
On perhaps the most contentious subject in banking, bonuses, senior bankers have on occasion been critical of high levels of pay outs, Deutsche Bank’s John Cryan urged banks last year to reconsider the structure of employees’ pay and acknowledged the negative effects on banks’ behaviour, while the head of its retail banking unit recently said bonuses should be banned for senior managers for a second consecutive year in light of poor performance. Credit Suisse’s Tidjane Thiam recommended a significant cut to his bonus this year and voiced scepticism over how bonuses are often currently paid out, regardless of performance. Might Labour hold talks with these sceptical voices to consider how to curb excessive pay, but without causing valuable activity to shift to competitors?
There does appear to be potential for some degree of policy alignment between Labour and the financial sector. The party could draw on some of the reform impulses of those working in the industry to form a new progressive financial services policy agenda, satisfying both groups in the process.
Oscar Warwick Thompson
(Oscar works as a financial services policy consultant for Hanover Communications)